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[Editor’s Note: SPW Legal Editor Tiffany Comprés, who practices with the renowned international law firm Shutts & Bowen LLP in Miami, writes regularly about produce and agriculture law matters. Feel free to send questions for a private or public reply here]

Tiffany Comprés

I have recently been involved in a few cases where growers and sellers of produce have failed to secure PACA trust rights due to a misunderstanding about the requirements. So I figured it’s about time for a refresher.

PACA Licensees

PACA licenses are available ONLY to American companies. If you have a PACA license, you can easily preserve your PACA trust rights by doing ALL of the following:

  1. Ensure that payment is required no more than 30 days after buyer accepts the produce,
  2. If the payment deadline is something other than 10 days after acceptance, then the parties must prepare and sign a parallel “payment terms agreement” stating the different deadline, and this deadline must exactly match the invoice, and
  3. Include the following language on your invoice:

The perishable agricultural commodities listed on this invoice are sold subject to the statutory trust authorized by Section 5(c) of the Perishable Agricultural Commodities Act, 1930 (7 U.S.C. 499e(c)). The seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.

 

Note that it is critical that a seller not, under any circumstances, agree to extend the payment date beyond 30 days. Doing so will void PACA protection.

Foreign Sellers and Growers 

However, if you are a foreign seller of fresh produce to the United States, then you cannot obtain a PACA license, and therefore you MUST instead give written notice of PACA trust protection to your buyer. I repeat, you cannot use the invoice method described above. To preserve PACA trust rights as a foreign seller and non-licensee, you must:

  1. Ensure that payment is required no more than 30 days after buyer accepts the produce,
  2. If the payment deadline is something other than 10 days after acceptance, then the parties must prepare and sign a parallel “payment terms agreement” stating the different deadline, and this deadline must exactly match the invoice, and
  3. Send a separate trust notice with the necessary information to the buyer within 30 days after payment is due.

The trust notice MUST include the following:

  • a statement that it is a “notice of intent to preserve trust benefits,”
  • name and address of the seller, commission merchant, or agent,
  • name and address of the buyer/debtor,
  • date of the transaction,
  • commodity,
  • invoice price,
  • payment terms, and
  • amount past due and unpaid.

Again, note that a seller should not, under any circumstances, agree to extend the payment date beyond 30 days. Doing so will void PACA protection.

ATTORNEYS’ FEES, COSTS AND INTEREST

The general rule in American law is that a party is not entitled to attorneys’ fees and costs unless they are provided for by law or the party’s contract. PACA law does not provide for attorneys’ fees. Courts have upheld awards of attorneys’ fees and costs to PACA litigants when a provision for attorneys’ fees and costs is listed on the invoice.

I recommend the following provision be included on an invoice:

Buyer agrees to pay all costs of collection, including attorneys’ fees and costs as additional sums owed in connection with this transaction in the event collection action becomes necessary.

Similarly, entitlement to prejudgment interest can be contracted for by setting forth an interest provision on your invoice. I recommend including the following language on an invoice:

Interest will accrue on any past-due balance at the rate of 1 and 1-2% per month (18% per annum).

[This column is published for the purposes of providing a general understanding of the law and does not constitute legal advice.  It is in no way a substitute for individual legal consultation and anyone with a legal problem should not rely on these answers but should instead consult their attorney. If you have a legal problem and do not know an attorney, call your local Bar Association’s Lawyer Referral Service.]

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